Romania's Bilateral Arbitration Option Clause: A Binding or Non-binding Arbitration Mechanism?
In most cases, parties insert an arbitration clause expressly agreeing to submit their differences to arbitration. However, sometimes they may wish to leave a door open to freely choose how their disputes will be settled at a future time.
The arbitration option clause
In an arbitration option clause, parties agree to either submit their disputes to the domestic courts or to settle their differences before an arbitral tribunal. The choice is made after the dispute has arisen, when both the nature of the dispute, and the other party are identified.
While resorting to an arbitration option clause instead of an arbitration agreement is not without snags, the parties may find some benefits in taking this road.
The parties may be of the view that arbitration corresponds to a loss of their right to go to court in favour of a private court that they have no experience with and a reluctance to test. Consequently, the parties’ intention is to try to preserve the advantages of both court and arbitration proceedings.
Legal framework in Romania
Under Romanian law, domestic and international arbitration are regulated separately. Book IV concerns domestic arbitration and Book VII – Title IV of the New Civil Procedural Law international arbitration, respectively. However, there is no express provision on the Romanian view of the bilateral arbitration option clause, and it is not often encountered in Romanian legal practice either, being dealt with by the Supreme Court in only a handful of cases spanning 13 years. 1
The main issue that arbitration and domestic courts are struggling with resides in the binding or non-binding character of arbitration that the option clause provides parties under Romanian law.
The questions that arbitration and national courts were required to answer were the following: Is a bilateral option clause a binding arbitration agreement? Is an additional agreement required in order to proceed to arbitration pursuant to Romanian law?
Under Article 553 of the Romanian Code of Civil Procedure, the conclusion of the arbitration agreement excludes the jurisdiction of the national courts for the dispute that it concerns. Moreover, Article 550 roughly provides that via arbitration agreements, the parties commit to refer disputes that their contract may give rise to, to arbitration.
Romanian arbitration and domestic court case law
As legal practice shows, the answer offered by Romanian case law depends on who you are asking. Arbitration practice shows a predilection to in favorem validitatis interpretations of the option clause, while national courts are undecided over what the option clause allows the parties to undertake.
The arbitration tribunals are consistent in determining that the option clause is a valid arbitration agreement. Opinions stemming from some arbitration decisions show that the intention of parties to resort to arbitration, even as an option, is enough to find that an arbitration clause exists and that it binds the parties to arbitration.2 In their view, why else would the parties mention arbitration if they did not want to be bound by it?
In other instances, the arbitral tribunal found that to subject the commencement of arbitration to a distinct agreement between the signatories would mean depriving the bilateral option clause of its effects. As soon as the claimant files a request for arbitration, the arbitration clause should be considered effective.3
National courts have a different view
On the one hand, domestic courts4 ruled that since the option clause does not irrefutably exclude the jurisdiction of the national courts, it does not represent an effective arbitration agreement, refusing enforcement of the award issued in its respect. As such, being considered a purely optional clause, the clause was not considered a binding arbitration agreement per se.
However, on 11 February 20165, the Supreme Court held that the bilateral option clause is not null and void. Here, it considered that resorting to arbitration was optional for the parties: “Exercising one option or the other is dependent […] on the subsequent agreement of the parties, in favour of arbitration or the national court”.6
As the arbitration clause is recognised as representing a severable contract from the contract where the arbitration clause is contained, it must also be subject to the same rules of interpretation and validity as those applicable for any contract. Thus, the arbitration agreement must be supported by adequate consideration and be expressed in writing7, as an ad validitatem requirement.
Thus, in the view of the national courts, the bilateral option clause was ineffective because it was not supported by mutual consideration, even if the contract as a whole was supported by adequate consideration. As there was no mutual commitment to arbitrate, there was no intention to arbitrate the disputes.
However, the Supreme Court did not dismiss the bilateral option clause from the outset. The parties’ will to establish mutual consultation before submitting the dispute to arbitration was considered as binding between the parties.
The Supreme Court’s approach aims at giving effective meaning to the terms provided by the parties under the bilateral option clause. As such, the Supreme Court’s recent decision is of interest for Romanian arbitration as regards bilateral option clauses, since it opens the door to the validity of these defective clauses nationally.
Although the concept of a bilateral option clause is quite new in Romania, a trend can be seen in the validity of this type of defective clause. While Romanian arbitration practice is a pro-arbitration jurisdiction, a proper understanding of national practice and specific domestic legal trends could come in handy when arbitrating or litigating under the national laws.
Romanian law does not explicitly regulate the arbitration option clause, national courts are laying down the foundations towards their recognition as a binding mechanism.
- Meaning from 2003 until 2016, including the decisions rendered where State-owned companies were involved, as well as where the issue of its validity was not in question.
- See, for instance, Award no. 283 dated 25 November 2009, V.A. Vlasov, Commercial Arbitration. 2007 – 2009 arbitration case law. Legal Practice, Hamangiu publishing house, 2010, pages 8 – 9.
- See, for instance, Award no. 233 dated 16 November 2007, V.A. Vlasov, Commercial Arbitration. 2007 – 2009 arbitration case law. Legal Practice, Hamangiu publishing house, 2010, pages 10 – 11; For further reference, Award no. 49 dated 9 March 2010, Award no. 124 dated 22 July 2009 and Award no. 145 dated 27 December 1996 rendered by the Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry of Romania and cited in Pandectele Romane Journal no.2 dated 28 February 2011.
- Bacau Court of Appeal, Decision no. 3259 dated 16 October 2014.
- Supreme Court Decision no. 318 dated 11 February 2016.
- Supreme Court Decision no. 318 dated 11 February 2016.
- Same requirement as provided by art. 7(2) of UNCITRAL Model Law.